• Consumer confidence in Europe reached all-time lows in 2022, linked to the acceleration in headline inflation; confidence dragged down spending;

• With energy prices returning to late-2021 levels, headline inflation will fall sharply this year, prompting a recovery in consumer confidence and retail sales;

• What is good news for the consumer is not necessarily good news for inflation targeting central banks, however.

We here review consumer confidence developments in the Eurozone and Sweden to contemplate the prospects for 2023.

Confidence dented

Consumer confidence fell sharply throughout 2022 as inflation accelerated.

For example, the EU and Eurozone consumer confidence indicator, produced by the European Commission since 1985, reached the lowest point in the series history last September.

Within the Eurozone Big 4, confidence in Italy and Spain was dented more during the peak of the Eurozone crisis, but in Germany, with the largest weight, we reached the lowest reading on record and in France joint lowest.

Since September consumer confidence has rebounded marginally, but remains very weak by historical standards.

Misery and confidence

What drives consumer confidence in the Eurozone?